More Q2 Letters, 13F Regulations and Bill Miller Podcast

Hope everyone’s off to a great week! We’re smack in the middle of Q2 Letter Season (one of our favorite times at Value Hive). As always during this month, we’re heavy on investor letters and new ideas.

If you have any new ideas you want shared with the Value Hive community, let us know! We’ll feature your submitted idea in the Idea of The Week category. We’ll give you props and a shoutout while we watch your recommendation rocket to the moon (we can only hope!).

Our Latest Podcast Episodes:

Here’s what we cover this week:

    • Bill Miller Q2 Letter
    • Massif Capital Q2 Letter
    • Akre Focused Fund Q2 Letter
    • Vlata Fund Q2 Letter


July 15th, 2020

Chart Of The Week: This week we’re featuring a potential breakout from a long-term rectangle consolidation. It’s a Japanese company that manufactures medical apparel used in hospitals, nursing homes and clinics. Given Japan’s aging population, I like our odds. Below is the weekly chart:

If you want to learn the name of this company, share this newsletter with your friends! Here’s what you need to do:

    • Share this newsletter on Twitter
    • Tag @marketplunger1 in the tweet

We’ll reach out and send you the name of the company.


Investor Spotlight: More & More Q2 Letters!

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This week we’re analyzing four investor letters (mentioned above). Let us know if there’s any investor letters you’d want profiled. We’ll include them next week.

Get a pen and pad ready! Let’s start with the OG Bill Miller.

Miller Value Partners: Performance Not Disclosed

Bill Miller’s quarterly letters go heavy on philosophy and light on actual investments. That’s okay because Miller’s thoughts on the philosophy of markets is an education unto itself.

He spends the first half of the letter relating markets to casinos (an analogy I love):

“Unlike many (most?) investors, casinos don’t shut down and refuse bets if they lose money at the roulette wheel. Knowing the odds are in their favor, they keep at it and ignore losing streaks (unless they think cheating is going on).”

Miller notes that stocks (and the general economy) go up about 70% of the time. Think about those odds in terms of a casino. Many casinos are lucky to get 1% edges in certain games. The market (aka, the largest casino), goes up (i.e., wins) about 70% of the time.

Record Dry Powder on Sidelines

The current “v-shaped” recovery we’ve seen in markets just might be the beginning. Why? There’s billions of dollars on the sidelines (dry powder) waiting to enter markets. Miller explains (emphasis mine):

“The result of the panic out of stocks in March is that there is now all-time record cash in money market funds, and bond funds have seen huge inflows even as rates hover at levels not seen for thousands of years. In the US, bonds have never been more expensive in US history than in 2020. The S&P 500 yields 3x what the 10-year Treasury does, and dividends grow over time while treasury payouts do not. This is similar, in my opinion, to what happened around the bottom in 2009: People became risk and volatility phobic and most missed the great 10-year bull market.

Rummage corners of FinTwit and you’ll find this exact sentiment. Investors assuring themselves the market will crash. Keeping loads of cash on the sidelines for “the inevitable reversion to the mean”. But what if that never comes? What if Miller’s right and this is the start of another 10YR bull market?

But there’s a reason why some investors remain in cash. There’s a reason why so many remain bearish. It’s called economic data.

Forward-Looking vs. Past Performance

Markets are forward-looking vehicles designed to discount future events into today’s prices to reflect long-term changes. Economic indicators and data are historical figures designed to show what has happened in the past. Not what will happen in the future.

So when you hear people ramble about how disconnected markets are from the real economy, you know why they think that. They don’t understand the dynamic, forward-looking nature of markets.

Miller elaborates on this idea below (emphasis mine):

The market predicts the economy; the economy does not predict the market. Stocks went down in the first quarter of this year and the first quarter of this year was a quarter of growth. Stock prices typically lead the economy by 4 to 6 months so it is, or ought to be, no surprise they have been headed higher. Why should they not be: Things are getting better not worse, earnings are bottoming and should begin to recover in Q3, the Fed has said they do not expect to raise rates for years, inflation is non-existent, interest rates provide no impediment to higher stock prices, and even valuations are not demanding at around 20x 2021 earnings given levels of inflation and rates.

It’s a great reminder that markets try to predict the future as best they can. If we focus on current (or past) economic data to make future investment decisions, we’ll lose. It’s that simple.

Oh, also forgot to mention: Don’t fight the fed.

Akre Focused Fund: +21.66% Q2

Chuck Akre’s fund returned 21.66% in Q2 and is up a little over 8% for the year. That’s not bad considering the S&P’s -3% total return on the year.

What does Chuck hold going into the second half of the year? Compounders, bro! Here’s his top five:

    1. American Tower (AMT)
    2. Mastercard (MA)
    3. Moody’s Corp (MCO)
    4. Visa, Inc. (V)
    5. SBA Communications (SBAC)

I love Akre because he’s true to his mantra of buying great businesses and never selling. He commented on his quarterly activity below (emphasis mine):

“With the rapid recovery off of the March 23 bottom, we were much less active buyers in the second quarter. However, we did put cash to work opportunistically in several names which, in combination with the strong recovery, helped reduce our cash weighting to just over 8% by the end of June.”

Akre’s cash position shifted from 17% at the start of the year to 8% today. That’s putting capital to work during distressed times. Greedy when others are fearful.

My favorite section from Akre’s two-page letter is the following paragraph (emphasis mine):

“This example underscores why market forecasts play no role in our investment process. Our focus is on individual businesses: their quality, prospects, and the valuations at which we would consider initiating or adding to positions. We endeavor to manage the fund in such a way that our decisions to buy or sell are entirely specific to each individual business without regard or reference to general market conditions and forecasts.

I love that. Focus on individual businesses. Let them guide your capital allocation decisions. Mark Minervini talks about this all the time on his Twitter page. He lets individual stocks determine his capital allocation policy — NOT the overall market.

If you’re finding great companies with durable advantages trading at discount prices, what difference does it make whether the index is up, down or sideways?

Massif Capital: +18.3% Q2

We love Chip Russell & Will Thomson’s work over at Massif Capital. We always find an idea or two that we can’t find anywhere else. And that’s really the point of stock-picking, isn’t it? Finding original ideas.

Massif returned 18.3% during the quarter and over 21% for the year. That’s far better than the S&P negative 3% total return on the year. How did they do it?

    • Basic Materials
    • Position Sizing

Russell and Thomson attributed 100% of their quarterly return to the long book (emphasis mine):

Our long book drove 100% of the results this quarter. This is a hard pivot from our first-quarter results, which were driven by our short book and tail risk strategy. Mining firms led the performance with Equinox Gold, Lucara Diamonds, Turquoise Hill, Barrick Gold, Lithium Americas, and Ivanhoe Mining, each contributing more than 2.5% to the portfolio’s return.”

It’s hard to lose betting on gold when the underlying commodity chart looks like this:

Basic Materials gained nearly 25% for the Fund during the quarter. But more important than what went right for Massif was what they adjusted going into 2020.

Position Sizing Matters

Most value investors approach position sizing as an afterthought. Not in the sense that they don’t know how to position size. Rather they take a basic approach like 10% of their capital into each position. While it saves mental capital and simplifies the process — what are we leaving on the table if we do that?

Here’s Chip’s take on position sizing (emphasis mine):

“For many managers, sizing decisions are driven by judgment and intuition, making it a tricky area of an investment practice to improve upon. However imperfect, we have attempted to develop an empirical framework to understand the impact of our sizing decisions better.

What did this dedicated position sizing effort bring in terms of returns? We’ll let Chip explain (emphasis mine):

“When we duplicate this analysis for positions sized according to our post fourth-quarter 2018 framework our winners now have a 2.48x greater impact on the portfolio vs. our money-losing positions. We are beginning to see directional evidence that adjustments to our process are leading to improved portfolio performance.”

In other words, position size matters. It’s something a lot of value investors can learn from the best traders. Things like R multiples, notional vs. actual risk.

Massif’s Current Positions

The fund’s finding it harder to find value in the gold and basic materials space. Chip notes that, “The present challenge with gold mining equities is that all the easy buys of the last two years have disappeared. Our previous successes in Barrick, Continental, and our yet to be realized success in Equinox (currently up ~100% for us) were all the result of purchasing stock at rock bottom prices when the world had no interest in gold.”

That’s a good problem to have.

Besides Bakkafrost (BAKKA), the Fund remains heavily invested in gold, uranium and basic materials.

That said, Massif is looking at Europe as a fertile ground for the next wave of energy investments. Here’s a few reasons why (from the letter):

    • Europe is further along in imposing climate change-related regulations on industry participants
    • Potential tailwind in the form of a vastly more thoughtful COVID19 related stimulus than investors will find in the US, a significant percentage of which is directed at the energy industry and productive investment.
    • S. electricity markets are still too dominated by utilities operating in an uncertain regulatory environment, and energy markets are also plagued by fracking firms in which we have little interest or enthusiasm.

I’ll keep my eye out on any European electricity companies. If I find any I like, I’ll include them in a future Value Hive!

Vlata Fund: Performance Not Disclosed

I love reading Daniel Gladis’ work at Vlata Fund. Though he doesn’t disclose performance figures in his letters, the amount of ideas and names makes up for it.

Gladis mentions a lot of stocks, so we’ll cover the ones which he offers commentary. As always, I encourage you to read the entire letter. Here’s the stocks we’ll cover with commentary from Daniel below:

    • Magna (MGA)

Daniel’s Take:Magna is showing itself to be more resistant to recession than we had counted upon. Its operating leverage is lower than in the last recession, its balance sheet is strong, and it very probably will boost its market share during this recession, whether organically or by acquisitions”

    • BMW (BMW)

Daniel’s Take: “BMW, meanwhile, is the only large car manufacturer to remain profitable, pay out its dividend in the originally intended amount, and not need to fall back on using credit lines from banks”

    • Samsung (005930.SK)

Daniel’s Take:Samsung recorded a drop in mobile phone sales, which was to be expected. On the other hand, its main and most profitable segment, which is producing semiconductors and memory devices, is doing better than we anticipated. This may in part be caused by the greater shift of people’s activities and transactions on-line during quarantine.”

    • Humana (HUM)

Daniel’s Take: “Humana is benefitting from a lower number of visits to physicians, which means lower insurance pay-outs for health care. This trend will most probably return gradually to normal by the end of the year.”

    • Markel (MKL)

Daniel’s Take: “Markel is on the one hand expecting higher pay-outs for damages caused by the pandemic (this relates mainly to insurance in the categories for event cancellations and business interruption). On the other hand, it will benefit from rising insurance premiums, which is already visible.”

    • Sberbank (SBER)

Daniel’s Take: “Profits at Sberbank will fall significantly this year. This is probably inevitable for banks during a recession. Despite this, its return on equity at the bottom of the recession will be higher than those of most large western banks in times of expansion.”

Fundamentals (Always) Matter

Gladis ends the letter with an ode to fundamentals. I know. We’re at that point in the cycle where we’re defending not only value investing — but fundamentals. Yet the rise of daytraders, nasty SPACs and unprofitable companies got us to this point.

Here’s Gladis’ take (emphasis mine):

“The speculative mantra of these days is “Fundamentals don´t matter.” Imagine that you went shopping in your supermarket and you were greeted by a large sign “Prices don’t matter.” Would that seem normal to you? I think that prices (and fundamentals) always matter.”


Movers & Shakers: Bye, Bye 13Fs?

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The SEC proposed new legislation removing the requirement to file quarterly 13F reports for funds under $3.5B AUM.

Why are they doing it? One argument is to compensate for the tremendous growth in the asset management business (from the article):

“The SEC said a $3.5bn threshold would reflect how much the US equity market had grown since the 13F rules were set up: from a total capitalisation of $1.1tn in 1975 to $35.6tn today. The agency added the 10 percent of managers that would still be filing 13Fs accounted for 90 per cent of the value of the stock holdings disclosed.”

Think of it as an adjustment for the inflation of assets under management in the industry. Which makes sense.

Yet some investors and regulators aren’t so happy (go figure). One unhappy camper, Allisson Herren said, “This proposal joins a long list of recent actions that decrease transparency and reduce both the commission’s and the public’s access to information about our markets.”

I don’t know what I think of this idea. As someone that wants to run a fund one day, I wholeheartedly welcome the initiative. Yet as an investor looking for new ideas and gleaning from those much smarter than myself, I don’t like it. Most of the funds I follow house <$3.5B. They wouldn’t have to disclose positions (save for investor letters). I’m undecided.

What about you? What are your thoughts?


Podcast of The Week: Bill Miller on Masters in Business

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I had a 10 hour car ride from SC back to MD on Saturday. Safe to say I listened to a lot of podcasts. One of them was Barry Ritholz interview with legendary value investor Bill Miller.

I love listening to Bill Miller. He’s one of the best value investors in the game. He doesn’t fit in a box. He invests in non-traditional value companies with a dogged focus on free cash flow.

Value investing isn’t in ratios multiples. It’s paying less today for something that will be worth more in the future. That’s it.

Give the podcast a listen. It’s a bit over an hour long. I listened at 1.5x speed and had no troubles.


That’s all I got for this week. Shoot me an email if you come across something interesting this week at

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.